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Congress seems to be near a final stimulus bill that will slash a Senate provision to give home buyers a 10% tax credit up to $15,000. Instead, Congress appears likely to eliminate a repayment requirement on a more modest $7,500 credit.

The House and Senate had to reconcile their differing $819 billion and $838 billion stimulus packages, respectively, and were simultaneously looking to reduce the final price tag to less than $790 billion. The tax credits to goose home sales had earlier emerged as one possible place to reduce the bill’s overall price.

Sen. Joseph Lieberman told Reuters that negotiators were leaning towards modifying the smaller $7,500 tax credit for first time buyers. Unlike the Senate provision, the existing credit carries income restrictions; it begins to phase out at $75,000 for individuals and $150,000 for married couples. Eliminating repayment provisions would cost the government between $2 and $3 billion, while the larger $15,000 credit would cost an additional $35.5 billion.

Senate Republicans pushed for the $15,000 credit last week, but didn’t appear to deliver any extra votes. Georgia Republican Sen. Johnny Isakson introduced the measure but voted against the entire bill, saying it was too expensive, and the final package won just three Republican votes. That means that dropping the more generous housing credit wasn’t likely to harm the political chances of the bill.

If the final tax credit gets pared back, it would represent a blow to the Realtors’ and homebuilders lobby that have aggressively championed the credits as a means to boost sales.

Real-estate professionals have looked at sharp home price declines for clues that a rise in home sales isn’t too far off, but more sobering news greeted that optimism Wednesday. The Mortgage Bankers Association reported that mortgage applications fell last week to their lowest level since November. Also, the MBA index that measures new home loan purchases fell to its lowest level since December 2000. Read More »

Real estate owners of many stripes saw something to celebrate in the Treasury Secretary’s sketch for a new financial rescue plan, from commercial real-estate owners to conventional mortgage borrowers. But one group still hasn’t been able to attract much sympathy: affluent borrowers of so-called jumbo mortgages.

The Treasury said that mortgage securities backed by commercial real-estate would become eligible for the Term Asset-Backed Securities Loan Facility, or TALF. And the department underscored a plan to buy up securities backed by Fannie Mae and Freddie Mac mortgages, which would effectively drive down mortgage rates on those conforming loans.OK?

But the Treasury’s “financial stability” fact sheet made only a passing reference to borrowers of mortgages that exceed limits by Fannie Mae and Freddie Mac, which start at $417,000 and can go as high as $625,500 in the most expensive housing markets. Read More »

The Senate is set to pass its version of the economic stimulus bill today, which will likely excite the real-estate industry and potential home buyers who could benefit from a 10% or $15,000 tax credit for new home purchases.

But it’s far from certain that the House will accept the Senate version, which includes far more generous credits. The House version would modify an existing $7,500 credit so that it wouldn’t have to be repaid, while the Senate goes much further by doubling the credit, removing income limits, and extending it to existing homeowners, from just first-time buyers.

The Senate version would also benefit more upper-middle income buyers. The current credit is refundable, which means that even those who pay little to no income tax could receive a government check, while the Senate credit is nonrefundable, so that buyers only stand to gain if they pay federal income taxes.

Will the Senate version survive? It’s hard to tell. One possible stumbling block: the bill passed with very little Republican support, most notably without the backing of Georgia Sen. Johnny Isakson, a former real-estate executive who succeeded in adding the $39 billion tax credit to the stimulus package.

Our Dow Jones Newswires colleague Corey Boles reported Monday that senior House aides said a decision hadn’t been made about whether to include the tax credits in the final bill, but given the fact that the credits did little to win Republican support for the compromise legislation, “removing them would likely not be a difficult decision for Democratic leaders.” (Just three Republicans planned to join all 58 Democrats in voting for the Senate bill).

Readers, what do you think? Which version of the home buyer tax credit would you vote for:

Readers are posing lots of different questions about the proposed $15,000 home buyer tax credit that’s in the Senate version of the economic stimulus bill. It’s important to remember that the proposed credit is far from a done deal. The bill still has a couple of big hurdles, including tomorrow’s scheduled vote in the Senate. (Read the Senate version.)

If it passes, it will have to be reconciled with the House version of the stimulus bill, which modifies an existing $7,500 home buyer credit, repealing a provision that requires buyers to pay it back.

There are some big differences between those two versions. The Senate version is nonrefundable, meaning you can only receive the credit if you owe federal income taxes. The existing credit is refundable, meaning you get a check from the government even if you don’t owe income tax. And the current credit applies to first-time home buyers, defined as anyone who hasn’t bought a house in three years. The Senate version is open to existing homeowners.

Nick Timiraos reports: Homebuilders are optimistic that Congress will add a $15,000 tax credit to the $900 billion stimulus package, and some builders are trying to take advantage of the offer by rolling out incentives of their own. Shea Homes’ Trilogy division, which develops homes in California, Arizona and Florida for aging baby boomers, is [...] Read More »

Congress is readying a stimulus package that could include some generous incentives for home buyers.

The Senate added to the $900 billion stimulus bill on Wednesday a home purchase tax credit of $15,000 or 10% of the purchase price. If it’s included in the bill that goes to the White House, that would represent a big gain not just for potential buyers, but also for the home builders and Realtors’ groups that have aggressively promoted such a proposal for months as part of their “Fix Housing First” lobbying effort.

The second plank of that lobbying effort — a proposal for federally subsidized 4% interest rates on 30-year fixed-rate mortgages — isn’t in the bill, but Senate Republicans are pushing for such a buy-down to spur home sales. Already, the Federal Reserve Bank has tried to lower interest rates by buying up securities backed by mortgages. However, after 10 straight weeks of declines, interest rates have edged up slightly in recent weeks.

Policymakers will also consider increasing limits on loans eligible for financing from government-backed mortgage entities to as high as $729,750 in the nation’s most expensive housing markets. The stimulus bill that passed in the House last week included the provision.

The Senate on Wednesday also approved $2 billion for state agencies to finance affordable housing.

Economists are skeptical that a builder tax credit or interest rate subsidies will stimulate the economy. Indeed, some argue encouraging the construction of new homes will only prolong the pain. “It is targeted not to the people who need help but an industry that wants a huge subsidy,” said Thomas Lawler, an independent housing economist. “Why give an unbelievable gargantuan subsidy only to people who buy a home? What about renters who are in more dire straits?”

Proponents of a tax credit point to similarly structured subsidies that Congress approved in 1975. The program gave qualified buyers a 5% credit up to $6,000 and brought down interest rates by around 1.5%, to 7%. But critics say that the analogy is misleading because the U.S. was exiting a recession that had been induced by oil prices, not a slide in home values.

“By artificially increasing prices we are encouraging more building,” says Harvard economist Ed Glaeser, who chided the Republican Party in a WSJ op-ed on Thursday for embracing interest rate subsidies. Read More »